Preventing Fraud and Corruption in a City Administration
„Corruption is one of the greatest challenges of the contemporary
world. It undermines good government, fundamentally distorts public
policy, leads to the misallocation of resources, harms the private
sector and private sector development and particularly hurts the poor.“
This quote from the mission statement of Transparency International,
the only international movement exclusively devoted to curbing
corruption, is a straightforward but abstract description of the costs of
corruption to society. In naked numbers the damages to the state’s
budget caused by corruption in Berlin alone are estimated at
approximately 100 Mio. € a year. Nevertheless the damage to public
faith in the impartiality of the city administration caused by the
frequent surfacing of new cases of corruption exceeds the material
damages.
The discouragement of any undesirable and socially damaging type of
behaviour by individuals of course begins with a legal framework.
Basically such a legal framework can rest on two pillars. Primarily
law makers may pass rules defining the desired procedures. On the
other hand penal law will order punishments for certain violations of
these rules and any other undesirable behaviour. Nobody will be
surprised to hear that Germany has a complicated and quite extensive
legal framework governing administrative procedures especially if
they include the spending of tax payers’ money. Our criminal law also
contains a wide number of penal provisions for a wide number of
offences ranging from fraud, peculation and cartel building to
corruption. In the case of corruption German law makers have chosen
to make a distinction between giving or accepting a benefit because of
the recipients position in the civil service and bribery which includes a
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violation of the recipients duty to the state. Both forms of corruption
are penalized but bribery of course leads to more severe sanctions.
Although the German legal system is quite extensive there is still
room for improvement. Germany is presently under criticism by the
OECD and also by N-GOs like Transparency International because
bribing members of parliament is still not penalized. Also the bribing
of foreign civil servants has only been forbidden under German law in
recent years. Before these changes were made German companies
could even deduct bribes to foreigners from their tax due.
A complicated and extensive set of rules is one step towards the
prevention of corruption. Far more interesting is the implementation
of these rules. Obviously a set of procedural rules is quite useless if
the state makes no effort to control whether they are observed.
Likewise laws penalizing bribery have no effect whatsoever if there is
nobody to investigate possible cases or if the investigators are
understaffed and underequiped and consequently unable to do their
job.
Although no major changes to administrative procedures and criminal
law had been made corruption cases were uncovered in rising numbers
in the mid-nineties of the last century a rising number in Berlin and
other German states. In some of these cases alarming links between
criminal groups and the public adminstration were discovered. In
Berlin this evidence lead to fears that the faith of the public in the
objectivity of the state administration and the incorruptability of the
civil service could be seriously damaged, if no countermeasures were
taken. The large number of corruption cases and the shocking
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behaviour of civil servants in some of these cases also indicated a loss
of social values in society in general but also within the civil service.
Experience from many sources showed that without effective
countermeasures this development would allow organised crime to
subvert the state and gain influence on political and administrative
procedures. The Berlin state government decided to follow two paths
in countering this threat. One measure was to initiate federal
legislation that classified courruption as a serious crime and doubled
the maximum prison sentence to be imposed for each case. The
second measure was to identify those parts of the state administration
that are especially prone to corruption and to develop instruments for
a more effective prevention. This was the idea that led Berlin to found
the Anti-Corruption Working Group.
The Anti-Corruption Working Group
In July 1995 the Berlin State Government (Senat) decided to set up an
"Anti-Corruption Working Group" with the task to unite the
professional know-how in dealing with the threat of fraud and
corruption from different government agencies and to institutionalize
the exchange of information between the administration’s branches.
The idea behind this was that although the state had extensive
preventive and repressive instruments including strict rules governing
public procurement, a state cartel authority and specialised police
units these instruments could not be used adequately because of a
serious lack of cooperation between the different branches of the
administration. Often the lack of cooperation was even flanked by
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distrust and professional misgivings between different specialists and
their various offices. It was the intention of the state government to
remove these obstacles to efficient and effective counter-measures
against the rising tide of corruption cases.
Already the founding of the Anti-Corruption Working Group was
expected to have a preventive effect on possible offenders especially
within the civil service. From the beginning it was also the task of
some of the members of the Anti-Corruption Working Group to track
down corruption in their respective government agencies through
preliminary examinations and inspections and audits without prior
notice.
Although the members of the Working Group combined an
exceptional range of competencies from internal auditing to the
investigative powers of the state prosecutors office, no new laws were
necessary to implement these powers. Within the Working Group each
member was expected to move only within his or her own framework
of duties and powers. Only the combination of all these preventive
and repressive powers within the same working body was
revolutionary and set an example. Members of the Anti-Corruption
Working Group were drawn from the following state ministries and
offices
The ministry of Justice
The office of the state prosecutor
The ministry of the interior
The state bureau of investigation
The financeministry
The tax offences investigation service
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The ministry of economics and technology
The state cartel authority
The building and housing ministry
The state audit office with regard to its independent courtlike status
delegated an observer who was assigned an advisory role. The
Working Group later invited representatives of the local authorities in
Berlin to join. Consequently it was reinforced by two district majors
and the head of a district’s legal department. All the members kept
their original posts and duties within the offices they were drawn
from. This enabled them to keep themselves up to date with frontline
developments and also made rapid reactions possible whenever
necessary.
In the beginning the Anti-Corruption Working Group was given the
following tasks:
I. Development of strategies against corruption
1. Analysis of corruption-prone areas
2. Development of special professional know-how in
countering corruption
3. Establishment of a central anti-corruption office to collect
data on corruption cases in Berlin
4. Development of anti-corruption guidelines and legislation
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5. Coordination of information and experience from different
offices within the state adminstration
6. Development of guidelines for internal auditors within the
participating offices
II. Implementation of strategies
1. Giving advice to individual offices and watching over
individual cases
2. Coordination of different offices involved in an
investigation
3. Evaluation of results from inspections and audits without
prior notice
Internal Auditors
One of the first major undertakings of the Anti-Corruption Working
Group was to assist the state government and the local administrations
in establishing internal auditing groups. These were set up in every
state ministry and in many of the local administrative offices. From
the beginning emphasis has been placed on the fact that the internal
auditors should not be integrated in to the hirarchy of the
administration. Instead in many cases the members of the internal
auditing groups report directly to the minister or the local mayor.
Others are part of the legal department of the respective branch of the
administration. Giving advice to and coaching internal auditors is until
today one of the major tasks of the Anti-Corruption Working Group.
Guidelines and Corruption Indicators
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The Working Group also set out immediately to develop guidelines
for the prevention of corruption and to list indicators for corruption.
The general guidelines for the prevention of corruption include:
- developing risk-analysis and identifying corruption-prone
working areas
- searching for security loopholes and developing internal
controling systems
- drawing up of behaviour codices for members of certain
administrative areas
- information of staff members in individual discussions
- drawing up of special guidelines for accepting invitations
to and participating in events and banquets organized by
business-partners
- strict application of the "four-eye-principle"
- regular rotation of personell working in corruption-prone
areas
- prohibiting additional occupations of civil servants in their
spare time that collide with their duties
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Additionally in the field of public procurement it is absolutely
necessary that all the rules governing an invitation to tender are
strictly complied with. In Germany especially the procedures for
public or limited invitations to tender are governed by complicated
european, federal and state rules. These even prescribe in which
public invitations to tender have to be announced. For instance if the
volume of the invitation exceeds a certain limit the offer has to be
published in the Official Journal of the European Communities even if
bids from companies with seats outside of Berlin are not to be
expected because of the nature of the contract offered.
Additionally to the already existing rules governing an invitation to
tender the Anti-Corruption Working Group developed guidelines to
reduce the size of possible loopholes:
- Creating different areas of competence for the different
phases of the procurement procedure like planning,
invitation to tender, conclusion of the contract, supervision
of the work in progress and the settlement of accounts
- Creating a database including all invitations to tender for
better control
- Obligation to use forgeproof paper and to fully document
the whole procedure
- Exclusion of all participants who have participated in
corruption in the past
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- Visiting of participating companies by civil servants
involved in the procurement procedure should be limited
to absolutely necessary cases and should be documented
in the files of the invitation procedure
In general these and other rules of a similar kind can reduce
corruption and cartels in public procurement if they are strictly
obeyed. It would be naive though to think, that the passing of rules
alone will prevent corruption completely. A certain amount of
repression will always be necessary. To uncover at least some of the
remaining cases the Anti-Corruption Working Group has developed a
list of corruption-indicators.
Corruption indicators may be
- A public sector monopoly in a market, giving public
procurement a very high importance for the firms involved
- A concentration of competencies in one hand especially if
this includes planning, invitation to tender, conclusion of
the contract, supervision of the work in progress and the
settlement of accounts
- Large discretionary powers of individual civil servants
- A high frequency of invitations to tender by individual
civil servants
- A long duration of "business relations" between individual
civil servants and certain firms
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- Recurring bidders indicating kartels or price fixing
- Anonymous tip-offs and complaints the responsible staff
members have ignored
- Violation of administrative rules and regulations
governing procurement procedures e.g. the splitting of
contracts to keep the prices below the limits for public
invitations to tender, illegal technical prescriptions to limit
the circle of possible bidders
- Incomplete planning of the published invitation to tender
- Supplements to the contract after it has been won by a
bidder
- Inadequate prices offered by individual bidders, prices
based on speculation and "mixed calculations" including
two or more different contracts
- A combination of fixed prices and billing by the hour
- Billing of services right up to the limit of the contract
- Billing of work on projects that were not part of the
contract
- Subsequent changes in the offer e.g. "calculation
mistakes"
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- Letters granting a subsequent reduction of the price
offered initially
- Intransparent and incomplete public files
- Incomplete bills
- Billing of low quality or nonexistent deliveries or services
- Double billing
- Conspicuously fast payments
- Renunciation of provisions of security
- Renunciation of guarantees
- Intransparent responsibilities
- Giving of presents
No one of these indicators is sufficient to prove that corruption has
taken place by itself. But at least the indicators can offer internal
auditors a reason for an indepth analysis of a contract or an invitation
to tender. With a growing number of cases and more experience
internal auditors have added their personal indicators to the list. For
instance an indicator with growing importance is the development of
prices. Whereas prices in certain sectors of public procurement have
fallen sharply in recent years in certain invitations to tender prices are
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still rising slowly and are now well above the market prices. In
someof these cases inspections by internal auditors have uncovered
cartels working behind the backs of the civil servants responsible or
even together with them to the disadvantage of the state and the tax
payer.
Next to general corruption indicators there is a special field of
indicators connected to internal control within the administration.
These indicators may include
- Concentration of specialised knowledge in one or just a
few civil servants
- Insufficient control structures
- Insufficient specialised knowledge on the level of control
- Deliberate elimination or circumvention of controls
- Lack of controlling possibilities
- Disregard of objections made by internal auditors
As corruption is always connected to individual people the human
factor should not be neglected either. Consequently the Anti-
Corruption Working Group has also developed personalised
corruption indicators. Again none of these indicators proves an
individual civil servant to be corrupt. The indicators can give internal
auditors a reason to have a closer look though.
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- Private contacts between civil servants and business
partners e.g. additional occuptations of civil servants with
private firms as advisors or consultants, ownership of
shares or other participations in a company, membership
in cerain clubs and societies, employment of family
members
- Insiderinformation and decisions with a high value for the
business partner
- Luxurious living style
- An apparent lack of understanding for the necessity to
prevent corruption
- Missing personal distance or "companionship" between
civil servants and business partners
- A lack of motivation of employees
Working with large amounts of money and dealing with business
partners who handle contracts worth millions of Euros requires a high
amount of discipline on the side of the civil servant. Lack of
discipline, greed and envy are regularly starting points of a career in
corruption. The indicators listed by the Anti-Corruption Working
Group take this into account.
Anti-Corruption Central Office
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Another important novelty resulting from recommendations by the
Anti-Corruption Working Group was the establishment of an Anti-
Corruption Central Office presently based with the Berlin prosecutor
general. Head of the Anti-Corruption Central Office is a senior
leading prosecutor.
His duties are
- receiving information about possible corruption cases and
if necessary passing it on to the anti-corruption department
of the office of the prosecutor
- supervising the investigation procedures lead by the anti-
corruption department of the office of the prosecutor
- structured registration of investigations by the anti-
corruption department of the office of the prosecutor
- giving advice to all administrative offices in Berlin
concerning the prevention of corruption giving advice and
information to citizens concerning the prevention of
corruption and recommending organisational measures to
prevent corruption and developing administrative
counter-measures against corruption in cooperation with
the Anti- Corruption working group
- analysing the yearly reports by the state audit office
regarding corruption training of civil servants to improve
the ability to recognise corruption reporting on the
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investigation of corruption and carrying out public
relations activities
- exchanging information with related offices in other
German states and cities
The Anti-Corruption Central Office does not investigate corruption. It
only assists in the coordination of investigations and supervises the
investigations of the anti-corruption department of the office of the
prosecutor.
Results
Prosecutors in Germany need a sufficient factual base to initiate an
investigation. For example we receive anonymous letters about
corrupt civil servants almost daily. Nevertheless usually we cannot
initiate an investigation on the basis of an anonymous letter. At least
some kind of proof like a witness or papers with data about money
transfers or other illegal dealings are necessary. So even if an
anonymous letter sounds very convincing no further activities by
prosecutors or police can be based on it. Before the Anti-Corruption
Working Group existed there was no other office either that could
have looked into the allegations on a different legal basis.
This situation has changed completely since most branches of the
Berlin administration have installed their own internal auditors in
compliance with the recommendations of the Anti-Corruption
Working Group. Prosecutors still cannot initiate an investigation on
the basis of an anonymous letter but they can pass it on to the
competent internal auditors. These have the power to enter any office
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and to inspect any file within their respective branch of the
administration at their own discretion. Internal auditors on the other
hand are not permitted to search any premises, arrest people or
question witnesses. This is not necessary either, because any proof
they find for fraud or corruption will be passed on to the police and
the office of the prosecutor. The proof supplied by internal auditors is
of course a sufficient factual base to initiate an investigation by the
office of the prosecutor. In the following investigation the internal
auditors then supply their special know-how about their respective
branch of the administration. As this may range from social security to
fiscal authorities, building offices or even the police, specialist advice
is necessary to understand the relevant procedures that have been
abused for the profit of the defendants. The internal auditors will in
some cases even appear as experts in the court hearings of the case.
In other cases internal auditors will approach the Anti-Corruption
Central Office to ask for advice in dealing with a certain situation.
This can lead to the initiation of a investigation but it may also result
in further inspections by the auditors.
The changes the recommendations of the Anti-Corruption Working
Group have made to those who have to work against corruption
professionally may be illustrated with the following example:
When I led more than a hundred policemen in the raid of a local
building authority six years ago I expected to find a large number of
suspicious files. What I did not know though was who would give an
expert opinion on these files so that they could be used as proof in the
investigation procedure and consequently in court. By the end of the
day I had confiscated over 2000 files. Already a superficial scrutiny of
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these files had provided sufficient proof for crimes ranging from
corruption to peculation, cartelbuilding, fraud, betrayal of state
business secrets and practically every other crime you might suspect
in the office of a building authority. Nevertheless in the evening I still
did not know who would write the expert reports necessary to take the
defendants I had arrested to court. In the whole of Berlin only the two
or three internal auditors of the state Building and Housing Ministry
had the know-how to write these expert reports but the internal
auditors of the state Building and Housing Ministry were formally not
permitted to work on a case concerning a local building authority. In
the end on the intervention of the Anti-Corruption Working Group the
state government changed these rules so that the internal auditors of
the Ministry now can be called as experts in to any investigation
dealing with fraud or corruption connected to local or state building
authorities. Within the next three years the internal auditors provided
their opinion in writing on 200 of the 2000 files, 50 of which I took to
court with five defendants including the deputy head of the building
authority. Court hearings are still going on.
Summary
Preventing fraud and corruption requires strict rules governing
administrative procedures and criminal law dealing with violations of
these laws. Developments in Berlin in the past few years demonstrate
that rules, regulations and criminal laws are not enough to reduce
fraud and corruption and the damage these crimes may do to the
budgets and the trust of the people in the effectiveness and
impartiality of an administration. Even a high standard of expert
know-how does not make a great amount of difference if it is not
coordinated by central body. In Berlin the Anti-Corruption Working
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Group has successfully taken over this task. We are still plagued by
fraud and corruption but now at least we are able to react
professionally with a large number of instruments. The difference was
made by an advisory body with no investigative or legislative powers.
Dr. David Hawkes